Allowing entities other than land-based Pennsylvania casinos to apply for operator licenses.

Tax rates ranging from 14 percent on all games, to 25 percent for all games, to 54 percent for slots and 16 percent for table games (the current rate for land-based casinos), to 54 percent for all games.

Placing online gambling under the purview of the state lottery rather than land-based casinos.

“We want to protect our investment,” Scavello told OPR. The tax rate “will be finalized by Monday, and hopefully Tuesday we’ll have the vote. Could it be less? Yes it can. We just need to have a discussion in our committee on what we can support.”

The tax rate is thought to be the primary point of contention among stakeholders. But strident opposition from Sands Bethlehem, conditional opposition from Parx, and the wildcard of VGT legalization could also throw wrenches into the works.

No consensus in House, either

The House faces similar divisions over tax rates.

Rep. George Dunbar, the primary sponsor of legislation in that chamber, has consistently advocated for a 14 percent tax rate. Setting the rates significantly higher “would essentially kill internet gambling,” Dunbar has said.

But Rep. Scott Petri, chair of the House Gaming Oversight Committee, recently told OPR that setting online tax rates below the rates currently applied to land-based casinos would “be penalizing casinos for having accepted the previous rate.”

How much does the tax rate matter?

Set a tax rate of 20 percent and we project Pennsylvania online gambling operators could generate about $364mm industry-wide from online gambling at maturity, throwing off about $72mm a year in tax revenue for the state:

If lawmakers set the tax rate at 54 percent – which would be the highest rate for online gambling anywhere in the world – and we project operators will cut back on player returns, marketing, game libraries, promotions, and just about everything else.

Why? Consider this chart of where an average dollar of revenue goes at a New Jersey online casino:

Such cuts would naturally reduce revenue for operators and the state even in the absence of competition.

But Pennsylvania’s regulated online casinos won’t lack competition. The state’s legal online casinos will compete against black market sites. Black market sites will not face the same tax and regulatory burdens as legal sites. The international experience has proven again and again that black market sites usually win under those conditions, creating an additional drag on revenue and tax receipts.